Feeling even more victimized, no doubt, after having watched former Bayou Group hedge fund manager Samuel Israel III fake his suicide for a weeks-long wild and wooly joyride on the lam before finally surrendering to authorities July 2, the investors cheated out of $250 million by this ex-trader are now suing one of Wall Street’s biggest banks to recover their losses.

Samuel Israel III bilked his investors out of $250 million, but they are hoping to recoup some of their money from one of Wall Street's deepest pockets: Goldman Sachs.

Bayou's creditors were taking aim at Goldman even before Mr. Israel, the former manager of the Bayou Group hedge fund firm, surrendered to the authorities on July 2. His faked suicide on a Hudson River bridge 40 miles north of Manhattan and subsequent disappearance on the day he was to start a prison term had set off an international manhunt. Bayou's unsecured creditors committee sued Goldman in late May, claiming the investment bank had failed to detect Mr. Israel's fraud, one of the biggest ever in the hedge fund industry, and to investigate signs that something was amiss at Bayou.

For six years, Goldman acted as the so-called prime broker for Bayou, clearing trades, taking custody of securities and providing reports on the fund firm's investments. The claim seeks $20 million. The lawsuit, filed as a private arbitration and in federal court, underscores the bind that prime brokers face when a hedge fund client blows up. In cases of fraud, prime brokers are often bamboozled too. But Bayou’s creditors claim that Goldman should have realized something was amiss, and argue that Goldman did nothing to investigate various warning signs.

"Through either gross negligence or a willful choice to ignore the signs of the fraud, G.S.E.C. failed to diligently investigate the red flags it was made aware of, to contact Bayou’s auditors to request additional information, or to alert the appropriate authorities of what it had learned," the suit says. The initials refer to Goldman Sachs Execution and Clearing.

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